What is a Good Yield for a Rental Property?

For many, investing money into a property or expanding an existing portfolio remains a great way to build wealth. 

Yet, whatever type of property you choose to put your money into, you need to be confident that the returns will be worth the money you spend. Calculating your rental yield is an effective way to compare the performance of different properties to help you determine if you’re making the right choice.

Why Invest in UK Property?

Despite recent policy shifts and a certain level of economic uncertainty, investing in property continues to be a reliable path to follow. The rental sector remains strong, and the start of a new year presents exciting and potentially rewarding opportunities for both new and established investors. 

Premium residential properties across various UK regions consistently draw both local and overseas buyers. In general, rental properties serve a dual purpose—as residences and investment assets—with their values shaped by multiple factors including economic conditions, post-Brexit developments, exchange rate movements, and taxation frameworks.

Meanwhile, houses in Multiple Occupation (HMOs) have a reputation for offering higher yields as they generate income from multiple tenants. While it’s true that HMOs tend to deliver optimistic returns, they command more intense management and strict legal compliance around fire regulations and licensing processes.

Understanding what rental yield is

As a buy to let landlord, there are two primary ways to make money—by increasing the value of the property you buy or through the rent you receive from tenants. In order to achieve a good rental yield, you ideally need to balance these two factors.

Rental yield is how much you can expect to receive each year in the form of rent, and it’s expressed as a percentage. Calculating this figure can help provide a clearer indication of whether the property in question is worth it, but bear in mind that there are other factors to consider such as finding reliable tenants or potential void periods.

You also need to consider the value of the property as a whole, and what you can do as the owner to improve this, whether it’s adding renewable energy systems, extending the kitchen or living room, or adding a garden room to improve marketability.

There’s no set rule as to what a good rental yield looks like, because the return will vary considerably depending on the size of the property, the location and your expenses to maintain it. Generally speaking, a rental yield of 7% is considered very good, and anything over 5% would be seen as good.

However, it’s not recommended to buy an investment property based on rental yield alone, because so many factors go into whether a buy-to-let is profitable in the long-term. You might struggle with a string of difficult tenants, for example, or you might sell the property and find that the market at that time affects your profits. Demand is also a key component. There’s no value in investing in a high yield property if the value of that building never increases. For example, if the surrounding infrastructure is never developed and the area becomes rundown, you could lose capital value and struggle to find tenants who don’t want to rent in the area. 

How is rental yield calculated?

There are two forms of rental yield: gross and net. Gross rental yield is the measure of your rental income against the price of the property, before expenses are taken into account. Net yield, on the other hand, is what’s left after your expenses.

To calculate gross rental yield, you need to multiply your monthly rental income by 12 to find the annual figure, then divide that figure by the purchase price of the property or its current value. Finally, multiply that figure by 100 to get your gross rental yield as a percentage.

To work out the net rental yield of the property, multiply the monthly rental income by 12 then subtract the annual costs of the property. This would include payments like the mortgage, maintenance fees, insurance costs or taxes. Divide this figure by the property’s purchase price, or its current value, and then multiply by 100 for the percentage.

BTL or HMO?

Rental yield calculations vary significantly between traditional Buy-to-Let properties and Houses in Multiple Occupation. While the basic formula remains the same (annual rent divided by property price), HMOs offer more complexity and potentially higher returns. HMOs can be valued either through traditional bricks and mortar assessment or commercial valuation based on rental income multiples.

For example, a 7-bed HMO generating £30,000 annual rent might have a commercial value of £300,000, yielding 10%. However, investors should consider whether the property is purchased with cash (which will affect your gross yield) or through a mortgage (which impacts Return on Capital Employed or ROCE, a measurement of how efficiently the property generates profits). With this in mind, HMOs can offer better leveraging options, enabling investors to expand their portfolios faster.

How to maximise your rental yield

As we’ve discussed, rental yield can vary significantly, but the ultimate goal is to aim for as high a percentage as possible. There are several ways to boost rental yields.

Location

One of the biggest factors in whether rental yield is high or low is the location you’re investing in. Bear in mind that in areas where property prices are higher, such as London or the southeast, you’ll achieve a lower yield. Research by Zoopla found that cities such as Sunderland, Aberdeen, Burnley and Dundee have some of the highest rental yields across the UK, exceeding 7%.

Type of rental property

The type of property you choose to invest in will also make a huge difference, because of the maintenance costs and property management needs, but also because of the types of tenants they would attract.

Houses in Multiple Occupation (HMOs), for example, tend to achieve higher rental yields because you can maximise your rental income by letting the property to more people. Holiday rentals require more management, but can earn higher incomes than residential properties, although it’s worth noting that you may have a higher risk of void periods.

Converting a property into flats is another highly effective strategy for generating multiple streams of reliable income. Flats offer investors the opportunity to attract a range of tenants, from young professionals to families, while benefiting from consistent demand in urban areas. A well-designed flat conversion can turn a single property into several rental units, spreading your risk and increasing your returns.

Amenities

The more you can offer your tenants, the more you can charge for rent. A well-furnished, beautifully designed and well-maintained property will not only attract the right type of tenant but it will also increase retention rates so you can minimise turnover. Do your research into what tenants are looking for in a property, from private outdoor spaces they can relax and entertain in to energy-efficient homes that will reduce their utility costs and great transport connections.

Rental yield: Key takeaways

Investing in a buy-to-let that achieves the best rental yield possible takes time and plenty of research. You need to look beyond surface-level details to consider the location of the property, its condition and size, local market trends, and opportunities to improve its value.

• While rental yields vary, you want to aim for a percentage of 6% or above
• Remember that these figures depend on a host of different factors, so consider how much it will take to maintain and manage the property, and whether there’s demand for this type of rental in the local area
• To maximise returns, consider where you invest and also the type of property—HMOs deliver great returns, as do holiday lets and student housing.

Let’s Maximise Your Property’s Potential Together

Getting the most out of your property investment doesn’t have to be overwhelming. At HMO Architects, we make the journey simple and stress-free, guiding you at every step to ensure your property delivers the results you’re aiming for. Whether it’s increasing your rental yield, navigating tricky compliance rules, or rethinking your property layout to attract top tenants, we’ve got you covered.

Our team has worked on hundreds of successful projects across the UK, so we know what works—and how to avoid costly mistakes. With us by your side, you’ll have experts handling the details, so you can focus on growing your portfolio and enjoying the rewards of a high-performing property. Whether you’re just exploring your options or already planning your next project, we’re here to help. Check out our full range of services or get in touch with our team today.